Nepa AB (publ): IMPROVED EARNINGS AND CONTINUED GROWTH

This is a translation of the Swedish interim report. If there should be any discrepancies, the Swedish language version governs.

 

FIRST QUARTER, JANUARY – MARCH 2020

• Net sales increased by 4.7%, or 3.8% FX adjusted, to MSEK 69.4 (66.3)

• Gross profit increased by 2.7%, or 1.6% FX adjusted, to MSEK 52.2 (50.9)
• EBIT was MSEK -0.3 (-3.3)
• Earnings after tax was MSEK 0.4 (-3.6)
• Earnings per share was, basic SEK 0.06 (-0.49), diluted SEK 0.06 (-0.49)

 

IMPORTANT EVENTS  

DURING THE PERIOD       

• P-O Westerlund was appointed as new CEO on January 26.

• Ann-Christine Fick was appointed new CFO and member of group management.
• Michael Wallin was appointed to the new role of Head of Investor relations.
• Global lifestyle and clothing brand GANT chose Nepa as brand tracking provider in all major markets.
• Based on our profitability focus and the recent outbreak of the Corona virus, several actions have been taken to address costs.  These include termination of employees under probationary period, termination of consultant contracts, and salary reductions of at least 20 percent for group management.

AFTER THE PERIOD ENDED

• More than 120 employees in Sweden and Finland have reduced working hours.

• Pay cuts of at least 20 percent have been introduced in many parts of the Group.
• We have downsized our Sweden office with redundancies.
• Nepa Finland have received a grant from government agency Business Finland to cover parts of salary costs during Corona.

 

A WORD FROM OUR CEO

Earnings for the first quarter of 2020 improved compared to the same period last year, despite the effects of the Corona pandemic at the end of the quarter. Gross profit was SEK 52.2 (50.9) million, an increase of 2.7 percent. The operating result (EBIT) was SEK -0.3 (-3.3) million. Earnings before and after tax were both positive for the first time since 2017, thanks to positive net financial items.

Nepa will continue to be a growth company, but a profitable one. It is the 56th quarter in a row that we are showing growth, but for the first time ever personnel costs fell, by 2.8% in the quarter – the overall decrease will be much larger in Q2. The decrease is a result of the increased focus on profitability that applies from this year.

Cost control is a priority and the need for cost control was particularly pronounced because of the proliferation of Covid-19. Nepa acted vigorously at an early stage, already in the beginning of March, which contributed to strengthen the result. The measures have included, inter alia, termination of probationary employment, consultancy contracts and reduced working hours. The cost-cutting initiatives have been implemented according to plan and are largely completed.

The measures are expected to reduce costs by approximately SEK 35 million on an annual basis from Q2, as previously communicated. However, the market uncertainty remains significant and we are well prepared to take further action if necessary. At the same time, Nepa is in a position with approximately 60 percent recurring revenue based on long-term contracts. All in all, this makes me feel comfortable that we – despite the challenges created by the pandemic – have taken a big step towards being able to show profitability in the long-term. 

The pandemic has led to customers postponing or redefining the scope of projects, but we have not lost any customers so far. On the contrary, we have had the pleasure of welcoming several new customers, both during the first quarter and at the beginning of the second quarter.

Strengthened financial position

Furthermore, it is satisfactory to note that we have strengthened our financial position since we had cash and cash equivalents of SEK 22.9 million as of March 31st, which is a strengthening of SEK 8.3 million since the beginning of the year. After the end of the quarter, we have also taken advantage of the Swedish government’s temporary loan facilities regarding social security contributions, VAT and other taxes, which has meant a strengthening of the cash position by an additional SEK 15.3 million.

Outlook

Most experts agree that the new normal will not look like the old normal. Although we do not know how and to what extent, we are likely to expect permanent behavioural changes among consumers. The need for support in the decision-making should therefore increase, which gives me reason to have a positive view of how demand for our services should develop. The time factor as to when and to what extent customers regain their previous investment capacity is difficult to assess, but I am convinced that Nepa can provide companies with business-critical input ahead of savings as well as investment decisions.

Although the future is difficult to predict, Nepa has a strong market position, long experience and a solid platform of competitive solutions. All in all, this means that I continue to see good business conditions for showing growth and improved profitability in the coming years.  

 

This is a translation of the Swedish interim report. If there should be any discrepancies, the Swedish language version governs. The Swedish version is information that Nepa AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, at 08:00 CET on May 20, 2020.